Published on: January 24, 2017
Developing a World-Class Supply Chain by Looking to the Past
Industry Week featured an interesting op-ed piece called, The Case for Supplier Development. Top manufacturing consultant Paul Ericksen stated, in order to have a world-class supply chain you need to return to the roots of good manufacturing. He believes you can achieve this by the development of a world-class supply chain.
Ericksen, who started in the world of manufacturing and supply chain development 20 years ago, remembers how when he began his professional career, companies cultivated and nurtured relationships with their suppliers. These relationships led to long-term contracts, good prices, and quality materials, which in turn led to thriving warehousing and distribution.
However, starting in the 1990s, upper management pushed for outsourcing supply chains to India and China, where cheaper prices and salaries meant lower prices and increased profits for manufacturers. If you can get the costs down in your supply chain, you can increase profits.
The pendulum has swung again in the opposite direction, according to Ericksen. Problems inherent in the overseas model include lengthy MCTs (manufacturing critical-path times) which can lead to delays in receiving goods. The “90 day” firm delivery date is laughable when many overseas companies deliver in six months plus six weeks of shipping time. Building up inventory is one solution, but that can be costly, both to build and house.
Enter the Role of Supplier-Developer
Ericksen suggests the role of supplier-developer added to warehousing and distribution businesses. The supplier-developer finds both global and national suppliers who can provide products at the lowest cost, but potentially long lead-time, as well as local suppliers, who may be able to turn around an order quickly but must charge higher rates. Cultivating relationships with both can ensure uninterrupted delivery of materials, albeit with some price variations. If the price variations aren’t too extreme, they can be smoothed out and averaged without too much of a hit to profits.
Benefits of Supplier Networks
Price is just one aspect of the supplier-developer network. Building a world-class supply chain also ensures that the quality of the finished products is superior to those produced by competitors. When the best components are added into the manufacturing of a product, the end result can be better others’ results.
Timely delivery also means a lot to customers. Customers who are kept waiting for weeks or months because you are still waiting for a shipment from China may take their business elsewhere. Having a local supplier, willing to work with you on timelines, may help you meet unexpected demand.
Returning to Supply Chain’s Roots May Be the Future
We often look to the future as if the success of a business relies upon the next, best, greatest invention. Sometimes, however, returning to the roots of manufacturing may be the answer. Within those roots is the role of supply chain development, of cultivating long-lasting relationships with trusted partners. The benefits of such relationships extend to your own customers, who can then rely on you to fill orders promptly and accurately.
There is no need to completely eliminate worldwide companies. There is still a place for low prices. If a worldwide company can provide low prices on your terms then there is no reason to terminate the relationship. It just seems that a mixed model of both local and global suppliers, along with a supply chain developer, is proving to be best for developing a successful supply chain.
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